Husband’s mother fails in claim that she was the real owner of the business

Divorce|April 4th 2019

In a financial remedy claim following divorce the court can obviously only deal with property that belongs to one or both of the parties. Property that actually belongs to someone else is not part of the claim. As might be imagined, it is a common scenario that someone other than the husband and wife, often another family member, claims to own property that would otherwise be subject to the claim. In such a case, the court must decide as a preliminary issue who actually owns the property, before it decides the financial remedy claim itself.

That was the task facing Mr Justice Mostyn in the recent case Rothschild v Charmaine De Souza.

Now, before I describe the case I should explain that its facts are a little complex, as they often are when family businesses are involved. I will therefore be simplifying the facts of the case for the purpose of this post, to make it easier to follow. In particular, I will assume that there was only one business throughout the history of the case, whereas in reality there were several businesses.

The case revolved around who owned the family business. Was it owned by the husband and the wife equally, as the relevant paperwork suggested, or was it actually owned by the husband’s mother, as she claimed?

The business, a company, was incorporated in 1999. Its two issued one-penny shares were transferred from the formation agents to the husband and the wife. Thereafter all of the documentation relating to the company, including documentation signed by the husband, indicated that it was held 50:50 by the husband and the wife. Certainly, the husband did not, in any of that documentation, indicate that the true owner of the business was his mother.

The marriage broke down and the parties separated in September 2016. Divorce proceedings then ensued, along with financial remedy proceedings.

Within the financial remedy proceedings the husband was required to prepare a financial statement (‘Form E’), setting out details of his finances, including all of his assets. A draft of the Form E was delivered in April 2017, and this was the first time that the husband asserted that the business was owned by his mother. His mother was made a party to the proceedings and, as explained, the issue of the true ownership of the business fell to Mr Justice Mostyn to decide.

Perhaps the most interesting part of Mr Justice Mostyn’s judgment is the initial section (paragraphs 1 to 7), in which he explains his task, and how the court goes about deciding what he called (using a term that a lay person would understand) who ‘really owned’ the company. If you would like a plain-English introduction to what can be a horrendously complex area of law then I would recommend that you read those paragraphs. It all boils down to the difference between being a ‘formal owner’ (i.e. the owner according to the documentation, for example the deeds, in the case of land) and the real owner – it is quite often the case that, for various reasons, the two people are quite different.

In fact, Mr Justice Mostyn’s task in this case was not that difficult (or at least that’s how his judgment reads to someone who has never sat in judgment of anyone or anything!). The evidence clearly pointed to the business being owned equally by the husband and the wife. Mr Justice Mostyn listed examples of facts indicating that the business had been treated and represented as being in the ownership of the husband and wife (at paragraph 23 of his judgment). He called the list a ‘formidable catalogue’. In other words, they very strongly pointed in the direction of the business being owned by the husband and the wife.

Faced with this unpleasant truth, the husband’s mother turned against her son, alleging that he had ‘gone rogue’, by holding himself out as the owner of, and dealing with, her property, when he had no authority to do so. Mr Justice Mostyn was having none of it: the husband had not gone rogue, in asserting to the world, including to tax authorities, and moneylenders, that he was, with the wife, the real owner of the business – he was speaking the truth. In any event, if they did not have any interest in the business, why would the husband and the wife have devoted their working lives to it?

Accordingly Mr Justice Mostyn concluded as follows:

“My very clear and strong finding on the evidence is that, at least from the time of the creation of the [company], it was the common intention of [the husband] and [the wife] that the business … would be owned 50:50 by them. [The husband’s mother] knew of this and went along with it.”

He therefore made an order declaring that the business belonged to the husband and the wife in equal shares.

His full judgment can be read here.

John Bolch often wonders how he ever became a family lawyer. He no longer practises, but has instead earned a reputation as one of the UK's best-known family law bloggers.

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